Host Hotels & Resorts Inc. Q1 2023 Earnings Call
2019 to 2023 is only one 8% versus the forecasted core CPI CAGR of 4% over the same period.
Turning to our balance sheet and liquidity position our weighted average maturity is five years at a weighted average interest rate of four 5%.
Have no significant maturities until April 2024.
We ended the fourth quarter at two two times net leverage and we have $2 3 billion of total available liquidity, which includes $203 million of <unk> reserves and full availability of our $1 5 billion dollar credit facility.
Wrapping up in April we paid a quarterly cash dividend of <unk> 12 per share.
All future dividends are subject to approval by the Companys board of directors.
So we expect to be able to maintain our quarterly dividend at a sustainable level taking into consideration potential macroeconomic factors.
To conclude we are very pleased with our recent operational performance, particularly relative to 2019 and our outlook for the remainder of the year is cautiously optimistic.
In any scenario, we believe our portfolio our balance sheet and our team are well positioned to continue outperforming and we will continue to be strategic in the current macroeconomic environment.
With that we would be happy to take your questions to ensure we have time to address as many questions as possible. Please limit yourself to one question.
At this time, we'll be conducting a question and answer session.
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One moment, while we assemble our roster.
Your first question for today is coming from Eric decline at BMO capital markets.
Irene Your line is live.
Hi, Thanks, and good morning, sorry about that.
Just maybe relative to the prior outlook, what's been the biggest surprise to the upside that's giving you the confidence to increase outlet projects, particularly in the second half of the year.
Yes, I think the <unk>.
Fact that all three segments are they is not isolated to any one of our business segments with all three segments are really firing on all cylinders, we haven't seen any slowdown.
In the leisure segment.
As Rob mentioned were up 5% in Revpar growth in Q1 and the leisure.
Segment of our business and we had six resorts.
That had transit revenues were $1000 or greater so it's apparent to us that the the well heeled leisure consumer continues to want experiences.
Experiential experiences they ship from goods to do travel and other experiences has occurred and it's real and it's very sticky.
Thats not withstanding the fact that we anticipated that.
There was going to be a natural migration.
Out of the resorts as people got more comfortable.
Internationally to the Caribbean to Europe into other places and going back to our downtown hotels, which leads me to the next piece of the business our downtown hotels have really seeing business return in a material way.
And not only business transient, but leisure business.
And we feel really good about the way the recovery is unfolding the way things are pacing for the leisure consumer.
<unk> is really.
Firing on all cylinders.
Total group revenue pace is now up two 5% to the same time in 2019.
Group rate on the books for 2023 is up nearly six 4%.
To the same time last year and at the 90 basis point increase since the fourth quarter.
We're still seeing as Rob mentioned.
A significant amount of bookings recurring in the quarter for the quarter.
I think last quarter was 28% compared to 2019.
You know a $93 4 million room nights deafness on the books now at 94% of 2022 actual relative to.
Where we were.
In.
Last quarter I think it was about 80% somewhere in that range. So we saw a significant pickup.
Business transient continues to evolve as well, we're seeing the recovery in BT led by.
Small and medium size businesses.
As well as.
Increase rate being driven by special corporate so I think it's it's all are all of the segments are really firing on all cylinders and I'll, let Rob add a little more color on BT.
Harry I think specifically when you look at the second half what really gives us confidence is the group booking activity.
For the second half of we picked up 237000 room nights just to put that into perspective.
35% more than what we picked up in Q1 of <unk> 19 for the second half of 19.
No real apart from just in the quarter for the quarter will pick up it was really encouraging to see meaningful activity not only for the for Q to Q2, we picked up about 180000 room nights is 13% above 19, but also for the second half of the year.
Thanks Ann.
The last thing I would add is that as we.
Thought about Q2 in.
In connection with our fourth quarter call.
We were looking at a scenario, where we where we were anticipating flat revpar growth for Q2 now.
Now we have.
We are giving your revpar growth of 4% to 6%.
Thanks for that color and if I could just ask on Orlando and the condo development there.
Can you just give a little additional context on that decision.
Maybe what what you expect the total cost to be and whether or not there are similar types of opportunities that.
You could potentially pursue.
Yeah.
The thought behind the.
Condo development adjacent to our four seasons resort.
Was a ROI project debt.
We anticipate is going to generate cash on cash returns in the mid to high teens.
On the development and sellouts.
As a standalone venture they are going to be four seasons branded units, which is.
A.
Very very attractive.
Branding to have whenever you are.
Building and selling something of this nature. Additionally.
Additionally, we have been taken into consideration is the uplift that the hotel is growing too.
<unk> received from having these 40 additional units.
Adjacent to it in terms of food and beverage spend.
Spa and golf spend all the ancillary ancillary revenues that are going to.
Be driven which we believe is a real and.
And you know.
Sustainable.
At the hotel property. So the total cost is going to be somewhere in the area of $150 million to $170 million.
And with respect to whether or not we have other opportunities.
As you know we have an ongoing.
<unk> of ROI projects that hosts.
And.
We are constantly working on additional ways to enhance shareholder value through deploying capital in ROI projects.
Now to remind you of some of the ones that we've done in the past as we brought 19 villas at the Andaz Wailea on Maui.
We built the AC Carolyn on a parking lot.
At the Western Caribbean resort in Phoenix, we're.
Were doing the expansion of the Phoenix.
Canyon suites at the Venetian so we have other type for our other projects in the pipeline, but we've always been very.
Dr. Paul I think with respect to our messaging and we do not message. These projects until we're confident that we have the entitlements and we're confident that we're going to move forward with them.
Thank you.
Your next question for today is coming from Anthony Powell at Barclays.
Hi, good morning.
A question about I guess your you're growing a bridge loan book I think you have two loans expiring later this year have you started to talk with our borrowers about extending those loans and just generally how much capital are you willing to have tied up in these loans going forward.
Well I think Anthony that we expect both of the loans on the share both Sheraton has to be repaid.
In the second half of the year.
The loans are.
In compliance with the loan documents payments are current both of the borrowers.
We anticipate that they are going to.
D in a position to pay us back so we have no concerns.
With respect to getting repaid on those loans.
With respect to the camby it was a.
A unique situation.
We had acquired the four seasons Jackson hole.
In 2022.
And we made a decision that the camby wasn't an asset that.
We needed to own or women's or owned.
For the long term given the amount of capex that needed to go into the property and are.
Terrific exposure in the Phoenix Metropolitan area with the Venetian and the Western Canada, We've got I think the two best resorts in the market.
There is some new supply coming into the Phoenix area.
And we made a decision that.
At $110 million it makes sense to sell that hotel.
We wanted to make certain that we could take advantage of the reverse like kind exchange opportunity by investing by designating.
The proceeds from that asset as a reverse like kind exchange into the four seasons Jackson hole property, because we had a very low basis in the asset.
That was one of the reasons that drove us to.
Provide seller financing.
I'll just I'll make a broader comment first of all I don't see us doing this on any broad scale.
And you know it's for a number of reasons number one we don't know where the portfolio is in a really terrific position right now given the capital allocation decisions that we've made over the last six years.
From 2018 forward, we've sold $5 billion plus of assets.
And really have a call the assets that we don't.
We didn't want to own for the long term out of the portfolio.
So I don't see us doing many more bridge loans, if any more bridge loans today.
But they are the assets that we have sold.
Not greater than I think.
$65 70, 570%, 60%, 70% loan to value. So we've gotten a nice slug of equity.
In connection with the sale and if something were to go south.
What we do for a living is owned hotels so.
<unk> bother us at all if we had to take the property back.
Your next question for today is coming from Smedes Rose Citi.
I wanted to ask you just a little bit more on the group side is kind of what you're seeing in terms of kind of the composition of demand is it mainly coming from smaller smaller groups are you seeing a return of kind of fortune 500 bookings some kind of maybe you could talk about that a little bit and then just with that could you just touch on what you're seeing with some of the larger.
Relatively recently renovated.
Mark key properties in San Diego, San Francisco, La New York.
Firstly on the group front. It is certainly more so being driven by smaller corporate groups, Although one thing which came back meaningfully and I've talked about this in my prepared remarks was Association Association is now down.
Only 2% in terms of group revenue to 2019 corporate group revenue up 6% to 19, and 26% was driven by rate in the first quarter some meaningful pickup in corporate group revenue.
<unk> and last year end.
Multiple quarters and we saw the same thing happened in Q1, but the big comeback has really been association, which we're seeing meaningful activity not only into Q2, but as well as the second half.
Okay. Thanks, and then just quickly on your four seasons, the condo development, but do you expect any disruption to the hotel or is it.
Far enough away that it will impact your guests.
Not anticipating any disruption suites.
Thank you guys.
Your next question for today is coming from David Katz Jefferies.
Hi, Good morning, everyone. Thanks for taking my question I, just wanted to follow on to that commentary, which Charlotte.
Sure Rob I know you look at in terms of the makeup of the group.
Business strength.
Is there any commentary or any color with respect to large corporate.
Corporate groups and the city Wides.
Meaning have there just not.
It's.
Gotten around to book and yet as you know there is some expectation or is there some trepidation to it how should we how should we look into that.
David If you think about sort of where the big city Wides come from and just to put into perspective for host for our portfolio.
We have about 20% to 25% of our overall group room nights that really come from city wise, we've done a really good job across the board.
Bringing in in house groups with yourself contain and with a lot of our hotels are we've expanded meeting space. We now have the ability to actually how is the group's completely in house.
Less dependent on citywide, but in general if you think about a lot of the convention centers that were actually closed during the pandemic just in terms of sales staff gearing up and selling those cities. There is more of a ramp up time and we were talking about this last year, how youre expecting the citywide would be sort of the last ones to come back in.
The meaningful way it certainly is very very market.
Specific.
As you well know like when you look at San Francisco, that's pretty meaningful meaningfully relative to pre pandemic levels, but other places, where we're seeing actually group bookings, which are being driven by city wides and have a good citywide pickup into future years, our cities like Boston like San Antonio.
Like Chicago.
It is coming back, but it's just a matter of them the entire sales staff getting all geared up and selling those cities, but so we do expect that to further ramp up with time.
So we should take it as further upside and if I can sort of follow up to the strong results and the guidance that you've already given us by the way.
If I can just follow on with respect to San Francisco, because it is a city as a matter of debate.
My sense is that you've done.
Reasonably well there can you just talk about what's going on there for you.
And sort of how you're differentiated than what we've seen in other you know other areas.
Sure.
I'll I'll.
Sure our broader thoughts and then Rob can get into a little more detail on what's happened in the damn brand in.
The first quarter and how we're thinking about it for the balance of the year. So.
<unk> clearly has its challenges there is no question about it I will tell you that we're not writing San Francisco off.
I think we have a mayor and that city that is committed to.
Fixing the the actual problems and then dealing with the perception as well.
From our perspective.
We feel very good about the assets we own there.
Given their location and many of you on the call.
I recently visited our Mosconi Marriott Marquis in connection with NAREIT. So you know what type of asset. It is it's in great shape.
It's been fully renovated and repositioned and it is main and main for any business that.
There is going to book through the Moscone Convention Center and it is an asset that is extremely well set up to.
To go after and bringing in in House group. So.
So we have that hotel and then we had the Grand Hyatt Union square another.
Terrific property, so as we think about the assets we own in that market generally and then the third meet a material as it is the Marriott Fisherman's wharf, which is a leisure.
Hotel as opposed to group and citywide property.
The assets, we had we liked the condition that they're in so we're in a pull position to really.
Take market share and be the first fulfill as business returns and we have seen some good results and I'll, let Rob.
Get into that with you in a moment.
I don't want you to think that.
We don't have concerns about San Francisco, because we do absolutely have concern about how the market's performing relative to.
2019 and.
What's happened with.
The layoffs in the world of Tac.
And the like and return to office in that market is really lagging the rest of the country.
It is a center of tech and it's going to be the center of artificial intelligence.
As the world.
As the World returns so with that I'll, let Rob give you some specifics on how our hotels performed in the market.
Yeah, Paul for the San Francisco market, we were around 61% occupancy or so at about $291, a while revpar overall relative to 19 is down 27, 5% I'll read it actually exceeded our expectations by about <unk>.
One, 5% or so and that was driven by strength of group.
But in particular with the return of the J P. Morgan group.
Food and beverage did really well, we were actually up almost 10% compared to our forecast.
And this is due to the increase in contracted banquet minimums, which frankly isn't seeing across the board, but that really didn't help them physical quite a bit we do see a lot of in the quarter for the quarter pickup in San Francisco a lot of the rooms that were actually booked a big piece of it was San Francisco that we picked up in the quarter.
Overall, when we're looking out for the rest of the year there are a few citywide.
The other I think for 2023, the total number of city Wides is about 34 and then another 20 citywide confirmed for 2024. So there is certainly a big.
Cautious and say somewhat of a positive trend and while.
It's a lot of it is short term and not necessarily long term pickup there are certainly some green shoots in San Francisco.
I really appreciate it good quarter well done thanks.
Your next question is coming from Michael Bellisario with Baird.
Thanks, Good morning.
Yeah.
Suraj here on the expense side of the P&L.
Are you seeing any easing of the cost pressures or the hiring challenges that you've mentioned previously and then do you have any updated.
Forecast for where you see wages and benefits tracking for the remainder of the year. Thanks.
Yeah, our outlook in terms of wage and benefit for the year year over year increase and still at the 5%.
Yes.
Don't expect that to change for the year, we are tracking well on that in terms of just overall passing.
Given where our business volumes are right now we feel pretty good I would say we are fully staffed across the portfolio.
And are not seeing any major challenges I mean, it's still is in certain markets are difficult to hire a line cook.
But apart from that we are lucky where we are predisposed.
Primarily Marriott managed and Hyatt managed hotel brand managed hotels, which they do a really good job of acquiring talent and retaining talent and relief are pushing for hospitality as a career, which has made it much easier to staff up.
Not only startup, but really get quality talent into our hotels.
Thank you.
Your next question is coming from Bill Crow at Raymond James.
Hey, good morning, everybody.
Or maybe this is more of a Rob question.
When you look at BT travel specifically you take out the.
The higher rates that we've seen where is occupancy or demand depending on how you want to look at it relative to 19, how big is that gap.
Yeah that gap from a volume perspective, depending on the market Bill is still are down anywhere from 15% to 20%.
We obviously had a meaningful rate pick up which so if you look at sort of March I said in my prepared remarks, our overall PT revenue was now down only 7% to 2019, but it is really market dependent and certain markets are ahead, New York for example is meaningfully ahead almost.
Close to where we were back in 2019, but I would say in general are somewhere between down 15 to down 20% in terms of volume.
And then do thank you for that do you expect that that gap can be narrowed further this year or do you think that given the overall cost of travel the macro headlines in tech layoffs, all that other stuff that we read about.
Is that something that maybe isn't as of next year or even 2025.
It's a little difficult to tell how that ramp is going to occur just given the macroeconomic uncertainty overall, but we are seeing a positive trend and sequential month to month improvement one other thing to keep in mind.
Are we sort of talked about in our prepared remarks is we're getting a lot of demand from small and medium size of.
Business transient versus the larger companies and some of that comes in through retail, which is difficult to classify exactly as business transient for some other GAAP or one could argue is being made up by selling more directly through retail as opposed to being classified business, but in general we still expect.
Some improvement to.
To occur, but probably plateauing until there is more of a macroeconomic circumstances.
Great.
Jim if I could just ask a quick one.
You noted that Youre in the hotel ownership business, which are great.
But you also have the shareholder returns business I'm wondering if the prospects for acquisitions can be appealing enough to.
To use capital in lieu of share repurchases.
Yeah.
We're actively.
Evaluating potential investment opportunities.
Thank the.
The gating the gating factor that really distinguishes host is the the fortress balance sheet that we have finishing the quarter now back down to two two times leverage.
After all the activity that has occurred over the last several years in particular, including.
You know the eight acquisitions that are that were completed over the course of 'twenty, one and 'twenty two.
As well as the 1 billion and a half dollars that we put in our portfolio that is all that is leading.
As well as the capital allocation decisions that happened.
From 18 forward.
That's what's leading to our outperformance today, so I just.
I wanted to set the table and.
The transformation of the portfolio with our.
Our revpar up 9% on a comparable hotel basis to 2017 trip are up 15% and EBITDA per key up 31%.
<unk>.
Flinching and unyielding focus on expenses and margins.
It is a big reason why we were able to blow through our 24% to 27% Revpar guidance in first quarter and deliver 31% and it put in a substantial beat and raise for the entire year.
We will continue to look for acquisitions that will elevate the EBITDA growth profile of the company right.
Right now.
What we're seeing out there.
<unk> is a fairly wide bid ask spread between.
Sellers with sellers want and what we are prepared to pay today now that can change and it can change for a number of different reasons on I'm talking about non distressed assets right now.
It can it can changes as we see a.
A clearer picture of the macro.
As we are.
We and everyone else draw some conclusions about how are.
The economy is going to perform.
Going forward and when I say.
It can change on both sides right I mean, we can get more bullish on our underwriting and are have a different point of view with respect to our cost of capital if the fed.
It does get into an interest cutting though which.
The street seems to be banking on that they're looking for two rate cuts the back half of the year.
I don't know, if that's going to happen or not.
On the other hand if.
If things get tougher than maybe some of the salaries expectations are gonna change regarding value. So we're keeping very close tabs on.
What's happening in the transaction market. We're also tracking all of the <unk> MBS loans that are going to be maturing later this year and into 'twenty four and 'twenty five.
So that is one place clearly that we will be prepared to deploy capital, but the great thing about our balance sheet is that.
It's not mutually exclusive from a host perspective, we can buy assets, where we will continue to invest in our portfolio will continue to.
Do our ROI projects to generate shareholder returns.
<unk>.
The dividend at 12 cents, a share and we will be talking to our board about what the with the next quarter's dividend is and we have the capital available to us.
To do share repurchases as well so it's kind of threading the needle, but we have the ability to do it all.
Very good. Thank you Jim we look forward to seeing you next week.
Likewise.
Your next question for today is coming from Chris <unk> at Deutsche Bank.
Hey, guys. Good morning, Thanks for all the.
Details so far.
My question would be on.
Group rate it seems like Youre really starting to benefit from some of the.
Rate increases you got on stuff booked post Covid, where do you think you are if we want to use the baseball analogy of innings in terms of recapturing or maybe the answer is pushing.
Group rate.
How long of a tail do you think that has what kind of increases or people agreeing to now for business group business out and say 'twenty four 'twenty five.
Yeah, we continue working with our managers to make sure that.
Rate is.
Certainly a priority.
And those conversations are frankly in a high inflation environment are much easier to have than otherwise.
And if you look at sort of where we were in terms of occupancy rate just for 2023 at the end of the fourth quarter, we were up.
Around 5%.
Higher year over year, and we improved 90 basis points already by the end of the first quarter, so wherever possible we.
Keep on pushing those rates and we feel pretty confident that as their availability.
It's becoming more challenging as you go out into the future and we have been seeing.
So the lead time.
Really expand so once those specifics they start getting booked up into the future that leased to real yield management and be able to drive rates even further.
So all in all a really good good trend from a rate perspective, and we are seeing continue to see rate strength not only into 'twenty three 'twenty four and beyond.
Okay. Thanks, Ralph.
Okay.
Your next question for today is coming from Stephen Grambling at Morgan Stanley .
Hi, Thanks. This is perhaps a longer term question, but with some of your brand partners in the midst of large tech investments how would you characterize the opportunity from a tech overhaul coming from some of your partners and then zooming out what are your general thoughts on artificial intelligence on how that could not only approach how you bring or what you bring to the business, but also why are you.
Our brand partners fit in.
Got it.
Given that <unk> was the father of our relationship with IBM Watson Stephen as much as I'd like to answer this question I'm going to let him answer it.
[laughter] effect.
In terms of what our brand partners are doing with technology. I mean, we have always been at the forefront of trying out new technology, whether it's proof of concept of piloting new technology to drive not only productivity improvements.
And you know.
Just looking at the overall sort of expenses, but also what is really going to drive customer satisfaction and what I like to refer to as sort of reduce transaction friction and those are conversations that we have with our managers is.
When you think about sort of the front desk of the future that there really needs to be a front desk periodic you got to give.
The optionality and flexibility to the guests.
Having access to your room, whether it's through your phone or whether it's through.
Setting up a click a physical key cultural kiosks.
And then being able to if nothing else is there you can approach a host to host a tick.
So those are the kind of conversations we're having is how do you really leverage technology change the long term sort of.
Operating model that we have had and drive not only efficiencies, but improved customer satisfaction.
As it relates to artificial intelligence.
I briefly mentioned there.
We entered into this partnership with IBM Watson and the Bakken.
Thousand 18, and really there was it was really with IBM research to develop a proprietary model for us that will help us identify.
The markets that outperform or underperform and rank them. So we can make much better capital allocation decisions, whether that's acquisitions dispositions or frankly, even investing capital in our existing assets and I.
I will say this as you know, while certainly IBM Watson couldn't predict the pandemic. It was most accurate in terms of predicting what revpar would do relative to every other third party predictor out there and including our internal predictive analytics. So it's been a really good partnership.
And it really is a tool that we utilize to help us make capital allocation decisions, but certainly at the forefront of it are we using natural language processing as well as multiple data points that are churned through IBM computing system to come up with those rankings.
Helpful. Thanks.
Our final question for today is coming from Duane <unk> with Evercore ISI.
Hey, Thanks, most of my questions have been asked just on B I apologize if you've said this your guidance does not include.
Any business interruption.
Our insurance or reimbursement there.
But what what do you anticipate that to be this year.
Frankly, it's difficult to tell right now because it is something that we agree upon with our onshore.
Insurers.
So from a timing perspective, and the amount perspective exactly how much we will get this year. It is difficult and that's frankly, why we have not put it in our forecast and it's not in our guidance, but the moment, we do collect a b I.
We will obviously, let you all know and it would flow through down to EBITDA.
Okay. Thanks, Okay sure.
We have reached the end of our question and answer session and I will now turn the call over to Jim for closing remarks.
I'd like to thank everyone for joining us today on our first quarter call. We're really excited about the way the year is setting up for us.
And we appreciated the opportunity to discuss our results with you and talk about guidance for the balance of the year. As a reminder, we will be hosting an investor day on may 22nd and 23rd in Orlando, Florida.
Many of you can join us and we look forward to seeing you there.
Thanks again.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.